Context:
Union Budget 2024-25 announces the scrapping of angel tax for all investors
Angel tax:
- Refers to the tax that the government imposes on funding raised by unlisted companies, or startups if their valuation exceeds the company’s fair market value (FMV).
- FMV – Refers to the price set for selling or purchasing an asset in the open market.
- The excess amount was treated as income and taxed at a rate of 30.9 %.
- Introduced in – 2012
- Falls under – Income Tax Act,1961.
- Purpose – To curb money laundering and prevent tax avoidance.
Reason for scrapping the tax:
- To reduce compliance burden for Startups as it was dealing with prolonged scrutiny and paperwork to justify their valuations, diverting their focus from core business activities.
- To increase the confidence of both domestic and international angel investors in investing in Indian startups.
Source: The Hindu
Previous Year Question
What does venture capital mean?
[UPSC Civil Services Exam – 2014 Prelims]
(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new entrepreneurs
(c) Funds provided to industries at times of incurring losses
(d) Funds provided for replacement and renovation of industries
Answer: (b)
